A quarter of respondents make higher contributions to DB schemes to manage funding

One in four respondents have had to pay higher contributions than expected as part of a more pragmatic approach to the management of their defined benefit (DB) pension scheme, according to research by actuarial consulting firm Punter Southall.

Its research, Reaching pragmatic funding agreements in challenging times, which was last carried out in 2009, found that both employers and trustees are using more creative and previously unexplored options to ease the pressure on their pension funding obligations.

The research also found:

30% of respondents reported issues or difficulties negotiating with the other side during the valuation process, and similar proportions reported difficulties in setting the assumptions for technical provisions (25%) and agreeing the recovery plan (27%).

90% of respondents had made some change to their mortality assumptions, and 75% had updated to the most recent assumptions.

Nearly 80% of respondents said the valuation process took at least as long as their previous valuation.

44% of trustee respondents who assess the employer covenant said they rely solely on information provided by the employer to do so.

41% of respondents wanted further guidance from The Pensions Regulator on how to incorporate employer covenant assessment into the funding plan.

45% of respondents said they monitor their funding position on a quarterly basis, while 34% said they monitor it annually or not at all between triennial valuations.

18% of respondents said they are aiming for a buy-out agreement over a definite time horizon, with this being more common in smaller schemes.

Adam Stanley, head of trustee services at Punter Southall, said: “These are tough times for both trustees and employers.

“Our survey shows that, now more than ever, both parties and their advisers need to be able to work together to reach pragmatic agreements.

“We found that trustees and employers have been adopting what you might call the ‘safety valves’ in the framework to meet this funding challenge. Both sides are willing to find solutions, but the ability for employers to find the money is an obstacle both are working to overcome.

“Another theme to emerge is that trustees and employers have more of an eye on the future with an increased focus on de-risking and a greater interest in the decommissioning of schemes.”